WT Business Beat

By Nick Wakeman

Whistleblower suits: Contractors beware

Even before the assistant U.S. Attorney for eastern Virginia spoke at the Fairfax County, Va., Chamber of Commerce event Tuesday morning, the news was sobering for contractors.

Gerard Mene is the coordinator of the Affirmative Civil Enforcement program in the U.S. Attorney’s office that covers half of Virginia, including Northern Virginia, Richmond and Norfolk. It goes without saying that he sees a lot of cases involving contractors and False Claims Act allegations.

He offered insights into how the act is working, and into the rise of Qui Tam cases, a.k.a. whistleblower cases, as part of a panel on compliance trends at the chamber’s annual government contractor symposium.

One thing was clear: Whistleblowers always go to their companies first, looking to report their fraud or other wrongdoing they’ve seen.

“There either was no one to tell, or they told and the company didn’t do anything,” Mene said.

John Brownlee, a partner with the law firm Holland & Knight, laid the ground work for why whistleblower lawsuits are a growing concern for contractors.

The numbers don’t lie: In 2009, there were 433 Qui Tam cases. In 2012, the number was 782. Of non-Qui Tam cases, the number was 132 in 2009, compared to 135 in 2012.

The dollars also should raise fears: $2 billion in Qui Tam settlements in 2009; $3.4 billion in 2012.

The takeaway from the panel, which also included executives from CACI International, Grant Thornton and Booz Allen Hamilton, was that contractors need robust compliance programs.

Hearing Mene talk, you could tell he loves whistleblower cases. “They lead to the largest settlements,” he said.

They also are strong cases because the whistleblower usually is either is an eyewitness to the wrongdoing, or participated in some way, he said.

While Mene said he doesn’t focus on a compliance program, companies are better served if they can show they investigated the allegation on their own, and will share that result. “The dialogue can be much different,” he said.

But, for him, the focus is how much did the government pay under false pretenses? “It’s all about the money,” he said.

False Claims actions aren’t the only compliance issue. There are Defense Contract Audit Agency audits, which right now are mired down by a backlog. Currently, they closing out contract audits from 2006, panelists said.

A big focus is on checking whether the contractor employees that are doing the work actually have the qualification described in the contractor’s proposal.

DCAA is moving toward a more risk-based approach for deciding how deep of an audit to conduct, which again points to the need for having a strong compliance program.

The current philosophy for working with DCAA is to be as cooperative and helpful as possible, said Julian Rosenberg, director of government contract services for the accounting firm Grant Thornton.

“If you have internal audit reports share them. Include your corrective action plan. Show them the actions you’ve taken,” he said. There is no reason not to.

But whether it is to fight off a Qui Tam suit or a DCAA audit, compliance and ethics start at the top of a company, but have to quickly move down to middle management, said Douglas Manya, vice president, deputy general counsel and secretary at Booz Allen.

“Your managers have to walk the walk,” he said. “That’s where the rubber meets the road.”

One example he described was to have new employees sign a certification that they will not bring proprietary information from their former employer, whether it is the government or another contractor.

“Your manager has to look them in the eye and say, ‘We don’t want information from your former employer,’” he said.

The current environment between contractors and government regulators is “unfortunately one of mutual suspicion and distrust,” Manya said.

But the lesson from Manya and the other panelists is that contractors can take steps to mitigate the risk from such an environment.

As he said, the focus of a compliance program should be on communication, controls and collaboration.

Reader Comments

Thu, Feb 21, 2013
SPMayor
Summit Point, WV

I am of the opinion that Qui Tam cases not only reflect the lack of diligence by firms when problems are brought to their attention but also the increase in fundamentally poor decision-making in regard to the financial metrics used by firms in the management of their Government contracts I believe this is particularly true for that community of contractors who are predominantly commercial with a Federal practice [as opposed to contractors who would be considered Government contractors] or those who are publicly held [including Government contractors]. The continuing pressure to make margin against internal metrics can encourage decisions that focus on satisfying the princes of the firm and not the Sovereign. Obviously, this view focuses on financially related misdeeds and not performance and quality issues [recognizing performance and quality issues are frequently tangled up with finances].

Wed, Feb 20, 2013
tjs
fairfax va

Makes sense.

Wed, Feb 20, 2013

The real reason for the increase is the reductions in the workforce and a desire to use the mantle of a whistleblower to either save a job or extract money when leaving. The numbers do not reveal a new religious of good deeds but the economic reality that if I may lose my job, I'll play the whistleblower roulette wheel and see what I can get.

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